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No one expects to fall on hard times and struggle with their mortgage payments, but sometimes life has other plans. An unexpected job loss, medical bills, a change in your family’s circumstances — any of these can disrupt your ability to pay on your mortgage loan.
It’s frightening when that happens — few things are more daunting than the prospect of losing your home. Fortunately, if you take action as early as possible, you may be able to get the help you need to pay your mortgage.
What to do when you’re struggling to pay your mortgage
Don’t forget your grace period. Most mortgage agreements include a 15-day grace period for late payments. Although any payment made after the due date is technically late, payments made within the grace period aren’t subject to penalties and late fees. While 15 days may not seem like much, it may be enough time to find additional money in your budget, move funds from a savings account, or borrow from relatives or friends so you can avoid the expenses you’ll face outside the grace period. That can make a big difference to your overall finances, since late fees can be up to 5% of your monthly payment. Falling behind a few months in a row could add hundreds of dollars to what you already owe.
Talk to your lender or loan servicer. The sooner you contact your lender or the loan servicer who manages your payment arrangements, the better. It’s in your interest, and theirs, to find an arrangement that would allow you to pay the loan. If you communicate with them and make a good faith effort to pay your mortgage, they’re more likely to work with you to find a payment amount you can manage. Anyone can fall on hard times, and lenders have mechanisms in place to work with borrowers who are struggling temporarily, which we cover below.
Reassess your budget. Once you take a hard, clear look at your income and expenses, you may find there’s more money available for your mortgage than you realize. You may be able to cut back in a few areas to free up the cash needed to make your monthly payments, but you may also find that certain lifestyle habits have become costlier than you think.
If working out a budget feels overwhelming — and it can, especially if you’re juggling multiple different bills and responsibilities — you don’t need to figure it out alone. Homeownership organizations in your area offer free financial counseling and budget guidance, and they can help you make sense of your situation.
“I find that 85% of the time, the money is there and they just allocated it to other areas,” said Sherry Smith, senior housing counselor at Neighborhood Housing Services (NHS) of Chicago. NHS Chicago and other local NHS offices operate under the auspices of national housing organization network NeighborWorks America, along with similar organizations throughout the country.
Look for nonprofit and government organizations that offer free and low-cost services — but be wary of any for-profit businesses that charge high fees for their services. You can also look for local counselors through the Department of Housing and Urban Development’s (HUD) website. There are HUD counselors specifically trained in foreclosure prevention, so they can walk you through your options as well.
What payment assistance options do I have?
Although falling behind on your mortgage is stressful and frightening, there are several options that may be available to you. As you’ll see, most forms of assistance will come directly from your loan servicer, which is why it’s so critical that you talk with them as early as possible. They may be able to get you onto an affordable plan before back payments pile up, saving you money and a great deal of stress.
Loan servicer assistance
Forbearance: A loan servicer may grant you a forbearance on the loan, suspending or reducing your payments for a time. If you’re experiencing a temporary hardship, a forbearance gives you a chance to catch up financially, perhaps find a new job with higher or more stable income, and save money before your forbearance ends and you need to start paying on the mortgage again. However, all of your payments, as well as interest, accrue during the forbearance period and you’ll owe the full amount once that period ends. Smith recommended that if you’re approaching the end of a forbearance and are still struggling, contact your lender at least a month in advance to request a second forbearance or learn about what other options they can offer you.
Some lenders may offer a similar option called a deferment, during which your payments will be lowered or suspended as well. As with a forbearance, those payments come due at the end of the deferment period and they’ll be distributed over your remaining payments, or you can pay them as a lump sum.
Loan modification: Your loan servicer may be willing to adjust your mortgage terms if you provide proof that you cannot make your payments based on your current agreement. In addition to adding payments to the end of the loan or extending the repayment terms, the lender can also adjust the interest rate to make the installments more manageable. Alternatively, they might distribute your past due and penalty amounts over your monthly payments so you can avoid paying larger sums at once. They may even be willing to cancel part of the debt.
However, to obtain a loan modification, you must show that you have made all reasonable efforts to uphold the original mortgage agreement. Keep budget records and bank statements so you can demonstrate that you cut expenses where possible and have tried all other options to make your payments. Hang on to any documentation for job interviews or other attempts to earn money through second jobs or side work as well, as those may bolster your case.
Refinance: Refinancing your mortgage may allow you to extend your repayment period, which may lower your monthly payments. If you have good credit, you may be able to secure a lower interest rate as well, further reducing the monthly burden. But you’ll likely pay closing costs on the new loan, so make sure you’re seeing the full cost of refinancing. You should also be aware that you’re extending your commitment to paying on the house, so if you anticipate other financial disruptions or aren’t confident you can sustain your new payments, this may not be your best option.
Reinstatement: Assuming that your financial hardship is temporary, your loan servicer may agree to a reinstatement plan. Under this agreement, you’ll have to make all of your overdue payments, in addition to penalties and other fees, by a mutually agreed upon date.
Short sale: If you can’t sustain your mortgage payments long-term or the house has become too much of a burden, you can negotiate a short sale with your lender. In a short sale, all proceeds go to the lender to put toward your outstanding mortgage balance. If the sale price does not cover the full amount that you owe, the lender may agree to forgive the difference. You may owe taxes on the forgiven portion of the loan, so you’ll want to speak with a financial advisor or tax attorney before deciding on this option.
Government assistance programs
Following the 2007-08 housing crisis, the federal government established several programs to assist struggling homeowners. While some programs have since closed, state-level assistance options are still available.
Hardest Hit Fund: The Hardest Hit Fund was designed to support homeowners in states that experienced the steepest unemployment rates and most substantial drops in home prices following the crisis. Although some states have ended their Hardest Hit programs, others are still accepting applications until Dec. 31, 2020. If you live in one of the following states, the state housing finance agency will be able to tell you whether the fund is still open in your area and explain the eligibility criteria for the program.
- New Jersey
- North Carolina
- Rhode Island
- South Carolina
- Washington D.C.
State relief programs: Depending where you live and what your financial circumstances are, you may be eligible for state assistance programs. In North Carolina, for instance, the Foreclosure Prevention Fund provides up to $36,000 in mortgage assistance while eligible homeowners apply for new work or develop skills that will help them find gainful employment.
Contact your state housing association to find out whether such resources exist in your area. You can also find a local HUD-approved counseling service through the department’s online search tool. Many areas offer programs that will help you through the logistical side of working with your lenders, as well as finding financial resources to help you through this trying time. Even if they cannot provide direct monetary assistance, they may be able to help you find job training or determine whether you’re eligible for financial relief programs that will help you free up extra money to pay your mortgage.
How to stop foreclosure
Get in touch with your lender quickly. Speaking with your lender or loan servicer early on is a critical step in preventing foreclosure. Depending on your state, foreclosure proceedings could begin very quickly. Plus, the longer you avoid speaking with your servicer, the more your fees and overdue payments will accumulate, making the situation worse than it needs to be.
“Yes, they are going to call you numerous times a day because they want to know when they’re going to get their money,” Smith says. “So you have to face it head on, as difficult as it may be.”
Ask about a loan modification or other options. The lender or loan servicer may be able to adjust the terms of your loan to make the payments more manageable. Lenders will sometimes extend the life of the loan or add overdue amounts to the back end of the loan. In the latter scenario, you’d begin making monthly payments as usual, knowing that your payment amounts will increase as you get closer to your payoff date. Such an arrangement would bring the account current and avoid default, and it gives you time to save money for the larger payments that are coming down the road.
Reducing your expenses and documenting any cuts you make will be especially important if you request a loan modification or relief from lenders. If the lender sees expenses such as dining out and entertainment on your bank statements, they’re more likely to reject your claim. So creating a budget, whether on your own or with a counselor, will help you get control of your spending and secure assistance if you need it.
If you do ask your lender for assistance, your budget should not show a monthly deficit, which indicates that you cannot consistently cover your mortgage payments.
Seek support from a housing counselor. You don’t have to negotiate with your loan servicer on your own. If you need mortgage assistance but don’t know where to begin, your state and local governments will be able to direct you to local HUD-approved counselors. The Federal Deposit Insurance Corporation (FDIC) provides an online list of foreclosure counseling resources. State NHS branches can also help homeowners provide the appropriate paperwork to their lenders and loan servicers when they’re applying for assistance.
The benefit of getting help from a counselor is that they will know exactly what types of forms are needed and how to submit them, and in some cases they have established pipelines for efficiently submitting those on their clients’ behalf.
How to avoid foreclosure counseling scams
The prospect of foreclosure can be a frightening one, and the impulse to accept help wherever it’s offered is understandable. Unfortunately, some companies prey on vulnerable homeowners who are struggling to pay their mortgages and are desperate to keep their homes.
You do not have to pay a company to help you avoid foreclosure, so be wary of any organization that demands payment for foreclosure counseling. Steer clear of anyone who promises they can save your home or tells you to stop paying your mortgage — unless you’ve arranged a forbearance or deferment with your lender, not paying your mortgage will increase the chances of losing your home. Some companies will also guarantee that they can get your lender to change your loan terms; however, only the lender can make those decisions, so you need to work with them directly.
Your lender or loan servicer will not charge you for counseling and negotiations, so either contact them yourself, or seek out reputable non-profits and HUD-certified counselors who will help you for free.